Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
Welcome Back Price Per User
An old pricing model is back in fashion. It’s found in tech circles were buyers wear blinders to real valuation metrics. Who needs earnings or revenues when you have users!
Price per user is nothing new. The dotcom boom was the first iteration. It’s built on the prospect of turning users into dollars eventually. For now, user growth and engagement matter and the price per user is rising.
Over the past year we’ve seen big buyout deals for Instagram and Tumbler. Now, Facebook strikes again buying WhatsApp, a smart phone app that piggybacks on your mobile plans internet service to send free text messages. Last I checked unlimited text messaging is part of most mobile plans. I guess free text messaging is the future?
Yet these companies have little to no profit and barely any revenues. So what do these buyers do? They put a price on the user.
Why? It’s the only way these tech companies can rationalize spending billions for a company with no earnings. The market, for now, is letting them. A time will come were those users have to earn their keep. Earnings will matter. Just not today.
Not to worry, there is a winner in every deal. What sounds expensive for Facebook works out great for the founders (and venture capitalists who invested). The WhatsApp deal added two new billionaires to the Forbes list (who should think about insuring their new Facebook shares). They followed the strict four step guide to riches:
- Find something that costs money
- Make it free
- Make no money
- Sell it for billions
Got to love technology!